Cottages With A Leasehold Interest On Reserve Lands

For decades, thousands of Canadians have owned cottages on land leased from First Nations. Many have bought, sold, renovated, and passed these properties down through generations, often treating them much like any other cottage. But, unlike traditional fee simple property ownership, a cottage on leased reserve land comes with an important legal distinction: You can build it with your own money, yet never own what you built. As leases approach expiry, that distinction can determine whether a cottage remains, is removed, or becomes the subject of a new lease agreement.

Any legal analysis of these leases begins with the unique framework governing interests in First Nations reserve lands. Unlike conventional leasehold arrangements, leases on reserve lands are not subject to provincial landlord-tenant legislation, such as The Residential Tenancies Act, 2006, S.O. 2006, c. 17. See Derrickson v. Derrickson, [1986] S.C.R. 285, at para 41. Instead, leasehold interests on reserve lands are governed by a combination of the Indian Act, the common law, and applicable land codes.

Many First Nations surrender a portion of their lands under the Indian Act to a corporation that is beneficially owned by it and then that corporation subleases portions of those surrendered lands to other legal entities; individuals being the most common. The headlease and the subsequent subleases are registered in the Indian Lands Registry System (“ILRS”). The ILRS consists of documents related to any interests in reserve (and any surrendered) lands that are administered under the Indian Act. By way of an example, we refer to a certain Sublease Agreement signed in May of 2000 between Washagamis Bay Investment Corporation (“WBIC”) that relates to lands located in the Province of Ontario.  Paragraph 14 of that Sublease stipulates that at the expiration of the lease, the cottage owner will have to peaceably surrender their possession of the land, the buildings, and other fixtures on that land. Generally, fixtures are immoveable objects that stay with the land when sold or transferred, such as cottages, sheds, garages, boathouses, docks, etc. Paragraph 14 further stipulates that where there is an unremedied breach of the Sublease Agreement, the WBIC may instead direct the cottage owner to remove all buildings and fixtures on the property at the cottage owner’s expense, in a way satisfactory to WBIC:

14. That at the expiration, or sooner termination of the term hereof, the Lessee shall peaceably surrender and yield up possession of the demised premises unto the Lessor, together with all buildings, fixtures and improvements erected, constructed and placed therein and thereon by the Lessee, in good and substantial repair and condition, reasonable wear and tear excepted; PROVIDED, HOWEVER, there is no unremedied breach of this Sublease and no “Assessment” or other monies owing the Lessor, the Lessor shall direct the Lessee to remove all buildings, fixtures and improvements erected, constructed and placed herein and thereon by the Lessee on the demised premises, whereupon such removal shall be done within one hundred and eighty (180) days from the date of such direction and at the expense of the Lessee, and in a manner satisfactory to the Lessor.

Paragraph 15 of the Sublease stipulates that where the WBIC has directed a cottage owner to remove all the buildings and fixtures on the land, the cottage owner must clean up and leave the land in a condition satisfactory to the WBIC. If the cottage owner fails to do so, the WBIC may take all necessary steps to clean up the premises and the cottage owner will be liable for those costs, having to pay these costs “forthwith” (within a reasonable time period) after receiving a demand of payment in writing from the WBIC. Paragraph 15 is as follows:

15. If the Lessee removes the buildings, fixtures and improvements erected, constructed and placed therein and thereon by the Lessee on the demised premises, pursuant to the Lessor’s direction referred to in paragraph 14, he will clean up and leave the demised premises in a condition satisfactory to the Lessor, and if the Lessee does not clean up the demised premises or remove all buildings, fixtures and improvements therefrom to the satisfaction of the Lessor, the Lessor may take whatever steps are necessary to remove any or all buildings, fixtures and improvements not removed and clean up the demised land, and the Lessee shall be liable for the costs thereof as an “Assessment” and the Lessee shall pay such costs forthwith upon receipt of a demand therefore in writing from the Lessor.

Other subleases might be different than the example listed above but we have used this example as it is common for Manitobans to have Subleases with WBIC. Although it can never be known what a lessor’s intentions will be to renew or not renew a lease or a sublease of any nature or sort, it would be advisable for cottage owners to keep the expiry dates of any leases or subleases that they have, whether or not it is located on reserve lands or otherwise, in mind as there might not be any guarantee of a renewal.  If you are planning to buy, sell, renovate, or leave a cottage as a family inheritance that is subject to the ILRS or any other lease, please consider consulting a lawyer that is able to practice in the jurisdiction of the leasehold property.  Both Kevin Nenka and Norm Snyder are licensed and insured to provide real estate advice in the Province of Ontario.

Bibliography: Derrickson v. Derrickson, [1986] 1 S.C.R. 285